Zynga Applies For A Gambling License And Eyes New Revenue Stream

It has been a busy few days for the social game maker Zynga (NASDAQ:ZNGA). The company has officially filed papers with the Nevada Gaming Control Board for a gaming license in the state. The license will be subject to the company’s financial standing and regulatory track record. It also launched a new game CoasterVille and partnered with Synacor Inc. a cloud based television services provider. CoasterVille is the latest addition to the successful set of ‘Ville’ games by Zynga and this time around players can build attractions to bring visitors into the roller coaster park. The agreement with Synacor will enable its users to access Zynga’s web page and play its games and use its platform and this service will start in 2013.

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Zynga Will Roll Out Real Money Games In The US And UK

While it waits for the gaming license in the US, the company will roll out real money games in other countries like the UK. It has already entered into an agreement last month, with bwin.party, to launch real-money gaming to its UK customers. It plans to launch a real-money version of Texas Hold’em Poker and FarmVille themed slots in UK.

Why CoasterVille Designed For Better User Engagement

The basic principle of the game, CoasterVille, is the same as all other Ville games. The players build up the theme park and roller coaster infrastructure in the bid to attract visitors. The visitors then spend money at stores, which generates resources for the player to continue building the attractions and the cycle repeats. The biggest difference this time around is the fact that the game can be customized by the players, making it significantly more complex than most other Ville games. The terrain, rides, styles can be modified and customized by users and comes with layouts and themes for the park. This level of customization was not available in its previous games and it is very likely that it will increase user engagement, leading to higher revenues from advertising and in-game purchases. The game has the potential to be unique for each player, which is a key differentiating factor from its other games. We currently model average revenue per user to be about $0.3 per month for its new launches and we will keep an eye on its progress in terms of monthly active users and revenues.

Synacor Deal Will Open A New Revenue Stream

Synacor is a cloud based television services provider and its platform enables cable, satellite and telecom companies to deliver entertainment services and apps to their subscribers. The company has nearly 24 million subscribers and this partnership will enable these users to access Zynga’s home page directly. The company has nearly 45 clients including Verizon and Charter who use its platform to deliver content to devices such as internet enabled TV, PC’s and tablets and Zynga will now have another avenue for delivering its games apart from Facebook and Zynga.com. While Facebook accounts for nearly all of its revenues, this diversification will pay off as Synacor’s subscribers increase or it adds more television services providers to the mix.

Outlook For The Rest Of 2012

Raising its lower end of the estimates, Zynga guided that bookings will be in the range of $1.09 billion to $1.1 billion while adjusted EBITDA will be in the range of $152 million to $162 million for 2012. Full year non-GAAP EPS is expected to be in the range of $0.02 to $0.03, based on a full year share count of approximately 830 million shares. We expect that reducing costs and concentrating on its top games will help its results in the next few quarters.

We have a $ 3.19 Trefis price estimate for Zynga, which stands significantly above its market price. We expect Zynga’s new platform and gaming network and online gambling initiatives to account for much of its future earnings potential.

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